Indonesia’s Bonds Complete Best Week in a Month on Fed Stimulus

Indonesia’s bonds completed the best
week in a month after the Federal Reserve expanded its asset-
purchase program, boosting the prospect of capital flows into
higher-yielding assets.

The yield on the notes due in 2022 fell to a 10-month low
after global funds added 3.35 trillion rupiah ($348 million) to
their local-currency debt holdings this month through Dec. 11,
Finance Ministry data show. The Fed will start buying $45
billion of Treasuries each month starting in January, it said on
Dec. 12. Bank Indonesia held its benchmark rate at a record-low
5.75 percent for a 10th straight meeting on Dec. 11. Central
bank rates are near zero in the U.S. and Japan.

“The Fed move will be supportive of high-yield assets, but
we expect limited gains in the bond market as the yields are
already very tight,” said Gundy Cahyadi, an economist at
Oversea-Chinese Banking Corp. in Singapore. “We want to hear
more hawkish statements from Bank Indonesia, as any further
disappointment on that front will weigh on the rupiah.”

The yield on the government’s 7 percent bonds maturing in
May 2022 declined 12 basis points, or 0.12 percentage point,
this week to 5.24 percent, the biggest drop since the five days
ended Nov. 16, closing prices from the Inter Dealer Market
Association show. The yield dropped three basis points today.

Bank Indonesia plans to begin redenominating the currency
in 2014, where each new unit would equate to 1,000 rupiah,
pending parliamentary approval, Perry Warjiyo, executive
director for economic research and monetary policy, told
reporters in Jakarta today.

The rupiah strengthened 0.2 percent today and this week to
9,640 per dollar as of 4:05 p.m. in Jakarta, after reaching a
three-year low of 9,733 on Dec. 10, prices from local banks
compiled by Bloomberg show.

One-month implied volatility, a measure of expected moves
in exchange rates used to price options, rose 33 basis points
this week to 5.70 percent, the highest level since Oct. 30. It
was unchanged today.